Perkins v. Emp'rs Mut. Cas. Co.

• Decision Date: 18 December 2020
• Docket Number: No. CV-20-01232-PHX-DWL,CV-20-01232-PHX-DWL
• Parties: Michael PERKINS, et al., Plaintiffs, v. EMPLOYERS MUTUAL CASUALTY COMPANY, et al., Defendants.
• Court: U.S. District Court — District of Arizona

507 F.Supp.3d 1172

Michael PERKINS, et al., Plaintiffs,

v.EMPLOYERS MUTUAL CASUALTY COMPANY, et al., Defendants.

No. CV-20-01232-PHX-DWL

United States District Court, D. Arizona.

Signed December 18, 2020

Amy Marie Pokora, Lewis & Pokora, Robert Kenneth Lewis, Lewis Law Firm PLC, Phoenix, AZ, for Plaintiffs.

Amy Michelle Samberg, Amy Lynn Stein, Foran Glennon Palandeck Ponzi & Rudloff PC, Phoenix, AZ, for Defendants.

ORDER

Dominic W. Lanza, United States District Judge Plaintiffs Michael Perkins and Joshua Page (collectively, "Plaintiffs") were injured in a work-related accident while traveling in a car owned by their employer and driven by a co-worker. They submitted a claim to Employers Mutual Casualty Company and EMC Property and Casualty Company (collectively, "Employers"), which had issued a car insurance policy to their employer, for uninsured/underinsured motorist benefits under that policy. After Employers denied the claim, stating that Plaintiffs’ exclusive remedy was to pursue workers’ compensation benefits, Plaintiffs brought this action. (Doc. 1-3.) Now pending before the Court is Employers’ motion to dismiss for failure to state a claim. (Doc. 5.) For the following reasons, the motion will be granted.

BACKGROUND

I. Factual Background

The following allegations, which are assumed to be true for purposes of Employers’ motion unless contradicted by matters properly subject to judicial notice, are derived from Plaintiffs’ complaint. (Doc. 1-3.)

Plaintiffs were employees of Imperial Ironworks, LLC ("Imperial"). (Id. ¶ 17.) On February 1, 2018, Plaintiffs were driving back to their office after a job when Daniel Garcia, another Imperial employee and the driver, rear-ended another vehicle. (Id. ¶¶ 12, 14, 16-18.) Imperial owned the vehicle that Garcia was driving. (Id. ¶ 15.) Plaintiffs were severely and permanently injured by the accident. (Id. ¶¶ 19-21.) Garcia was "believed to be under the influence at the time of the accident" and did not pass Imperial's drug screening tests, yet he was nevertheless permitted to drive Imperial's vehicle. (Id. ¶ 23.)

Imperial is the named insured of an Employers commercial auto policy. (Id. ¶¶ 25, 27.) Because the vehicle involved in the accident was owned by Imperial, it is covered under the Employers policy. (Id. ¶¶ 26, 28.) The policy provides uninsured/underinsured motorist ("UM/UIM") coverage up to $1 million. (Id. ¶ 29.)

On April 5, 2018, Plaintiffs submitted a claim to Employers for UM/UIM coverage for their injuries. (Id. ¶¶ 43-44.) On April 10, 2018, Employers informed Plaintiffs that it had received the claim and would provide a response after it completed its investigation. (Id. ¶¶ 48-49.)

On April 16, 2018, Plaintiffs requested that Employers "confirm that there [was UM/UIM] coverage under the policy." (Id. ¶ 50.) Plaintiffs stated that they "would be first-party insureds under the policy and that they [were] entitled to know the coverages available and the policy limits for such coverages." (Id. ¶ 51.)

On April 19, 2018, Employers denied Plaintiffs’ request for UM/UIM coverage. (Id. ¶¶ 52-53.) In support of the denial, Employers stated that "[w]orkers’ compensation is your client(s) exclusive remedy as they were in the course and scope of their job." (Id. ¶ 56.) Additionally, Employers cited a policy exclusion that referred to workers’ compensation. (Id. ¶ 55.)

On April 25, 2018, Plaintiffs sent a letter to Employers stating that they had never received a copy of the policy and that "there were cases in Arizona and other jurisdictions finding that exclusions to [UM/UIM] motorist claims [are] void." (Id. ¶¶ 61-62.) Plaintiffs also asked whether Employers had "obtained a coverage opinion" before denying coverage. (Id. ¶ 63.)

On May 4, 2018, after a follow-up letter from Plaintiffs, Employers informed Plaintiffs that it did not obtain a coverage opinion and that it was not required to do so. (Id. ¶¶ 65, 67-68.) Employers again cited the workers’ compensation exclusion as its basis for denying coverage. (Id. ¶ 73.)

On May 15, 2018, Plaintiffs asked Employers to "confirm that [Plaintiffs were] ‘insureds’ under the policy," but that it was Employers’ view that Plaintiffs were not entitled to coverage due to the policy exclusion. (Id. ¶¶ 75-76.) On June 22, 2018, Employers responded by confirming that Plaintiffs were insureds and stating that Plaintiffs’ sole remedy was workers’ compensation. (Id. ¶¶ 79-82.) Additionally, Employers stated, for the first time, that Plaintiffs were not entitled to coverage because Imperial and Garcia had not engaged in "willful misconduct" and because there was not a qualifying "accident." (Id. ¶¶ 83-84.)

On October 24, 2018, Plaintiffs sent a letter to Employers "noting that the sole basis for [Employers’] denial on two occasion[s] was" the exclusion. (Id. ¶ 86.) On November 15, 2018, Employers sent another letter to Plaintiffs confirming its denial of coverage. (Id. ¶ 107.)

II. The Policy

The Employers policy¹ contains provisions entitled "Arizona Uninsured Motorists Coverage" (Doc. 50-1 at 34-37) and "Arizona Underinsured Motorists Coverage" (Doc. 5-1 at 38-40). Each provides in relevant part as follows:

We will pay all sums the "insured" is legally entitled to recover as compensatory damages from the owner or driver of an "[uninsured/underinsured] motor vehicle." The damages must result from "bodily injury" sustained by the "insured" caused by an "accident." The owner's or driver's liability for these damages must result from the ownership, maintenance or use of the "[uninsured/underinsured] motor vehicle."

(Id. at 34, 38.)

Each provision also defines the term "insured" to include "[a]nyone ‘occupying’ a covered ‘auto.’ " (Id. at 34, 38.)

III. Procedural History

On April 13, 2020, Plaintiffs filed suit in state court. (Doc. 1-3.)

On June 22, 2020, Employers timely removed the action to this Court based on diversity jurisdiction. (Doc. 1.)

On June 29, 2020, Employers filed the motion to dismiss. (Doc. 5.)

On July 13, 2020, Plaintiffs filed a response. (Doc. 6.)

On July 16, 2020, Employers filed a reply. (Doc. 9.)

On December 11, 2020, the Court issued a tentative ruling. (Doc. 11.)

On December 17, 2020, the Court held oral argument. (Doc. 12.)

DISCUSSION

I. Legal Standard

To survive a motion to dismiss under Rule 12(b)(6), "a party must allege ‘sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.’ " In re Fitness Holdings Int'l, Inc. , 714 F.3d 1141, 1144 (9th Cir. 2013) (quoting Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (quoting Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 ). "[A]ll well-pleaded allegations of material fact in the complaint are accepted as true and are construed in the light most favorable to the non-moving party." Id. at 1144-45 (internal quotation marks omitted). However, the court need not accept legal conclusions couched as factual allegations. Iqbal , 556 U.S. at 679-80, 129 S.Ct. 1937. The court also may dismiss due to "a lack of a cognizable legal theory." Mollett v. Netflix, Inc. , 795 F.3d 1062, 1065 (9th Cir. 2015) (internal quotation marks omitted).

II. Analysis

Plaintiffs have asserted two claims against Employers. Count One is a state-law claim for breach of contract. (Doc. 1-3 ¶¶ 108-23.) Count Two is a state-law claim for bad faith. (Id. ¶¶ 124-34.) As part of their bad faith claim, Plaintiffs also assert a claim for punitive damages. (Id. ¶ 133.) Employers moves to dismiss both claims and the claim for punitive damages. (Doc. 5.)

A. Breach Of Contract

Plaintiffs’ breach of contract claim is premised on the allegation that Employers improperly denied their claim for UM/UIM benefits under the policy. (Doc. 1-3 ¶¶ 113-16.) Employers argues this claim fails as a matter of law because, in Arizona, workers’ compensation is the exclusive remedy for work-related accidents. (Doc. 5 at 4-6.)² Plaintiffs respond by offering various reasons why Arizona's rule of exclusivity for workers’ compensation benefits should be deemed inapplicable here. (Doc. 6 at 5-15.)

1. Arizona's Workers’ Compensation Law

In Arizona, "[t]he right to recover compensation pursuant to [the workers’ compensation scheme] for injuries sustained by an employee" is, subject to certain exceptions discussed further below, "the exclusive remedy against the employer or any co-employee acting in the scope of his employment." A.R.S. § 23-1022(A).

Employers argues it could not have breached the policy by denying Plaintiffs’ claim for UM/UIM benefits because, under § 23-1022, Plaintiffs are barred from seeking such benefits. (Doc. 5 at 4-6.) Employers points to Atlantic Specialty Insurance Co. v. Teller , 224 F. Supp. 3d 844 (D. Ariz. 2016), which held that Arizona's "workers’ compensation scheme bars UIM recovery when the underinsured tortfeasor is an employer." Id. at 849. The Teller court noted that "23 states ... conclude[d] that a UIM claim is barred by workers’ compensation schemes if the claim is based on an employer's or co-employee's fault," while only one court (in Oklahoma) had reached the opposite conclusion, so there was a "lack of serious debate" among the states about the issue. Id. at 848-49. Plaintiffs respond that " Teller is wrongly decided" and point to Transnational Insurance Co. v. Simmons , 19 Ariz.App. 354, 507 P.2d 693 (1973), as the key Arizona case supporting their position. (Doc. 6 at 8-10.)

"In determining the law of the state for purposes of diversity, a federal court is bound by the decisions of the highest state court. If the state's highest court has not decided an issue, it is the responsibility of the federal courts sitting in diversity to predict how the state high court would resolve it." Albano v. Shea Homes Ltd. P'ship , 634 F.3d 524, 530 (9th Cir. 2011) (citation...